Question

1. What is the biggest advantage of the Base-stock model over the RQ model?
2. What is the biggest advantage of the RQ model over the Base-stock model?
3. List two alternative conditions under which a company would not need to carry any safety stock.

Answer 1

1.

The biggest advantage of the base-stock model over the RQ model is that the base-stock model is a fixed-interval review model where the reviewer does not have to keep the track of the inventory in run-time. He/ she needs to review and order if necessary in fixed periods irrespective of the inventory position. For the RQ model, one will always have to keep track of the inventory position in the real-time and order exactly when the inventory level falls below the ROP. This is only possible when we have a sound inventory monitoring and ordering system backed-up by IT systems.

2.

The biggest advantage of the RQ model over the base-stock model is that it ensures optimal inventory policy (which is not ensured by the base-stock model) and hence the total cost of the RQ model will always be less than that of the base-stock model. The base-stock model approximates the requirement of the RQ model and device an optimum review period but still cannot match the total minimum cost of the RQ system,

3.

The safety stock is used to give protection against the variability of demand during the lead time which is the function of demand and lead time

• When the demand is constant i.e. having zero variability, safety stock is not necessary.
• When the replenishment lead time is constant and having zero variability, safety stock is not required.